WILL THERE BE CAP&TRADE?

Climate Bill Demands Pile Up for Boxer, Kerry Headed Into Summer Break
Darren Samuelsohn, August 3, 2009 (NY Times)
and
Fate of climate change bill in Congress
Richard Cowan (w/Philip Barbara) August 3, 2009 (Reuters)

SUMMARY
The Senate Environment and Public Works (EPW) Committee, chaired by Senator Barbara Boxer (D-Calif), will hold a hearing expected to be the final clarion call of the summer for the Obama administration’s energy and climate proposals. Chief among the proposals is cap&trade, the administration’s chosen method of reducing U.S. greenhouse gas emissions (GhGs) and getting the country back into the world’s fight against global climate change.

Senator Boxer and Senator John Kerry (D-Mass), EPW member and Chair of the powerful Senate Foreign Relations Committee, have promised to present a draft energy and climate bill when the Senate reconvenes in September.

Witnesses at the upcoming hearing who are expected to make their best cases on cap&trade are Department of the Interior Secretary Ken Salazar, Chair of the Federal Energy Regulatory Commission (FERC)Jon Wellinghoff, Department of Energy Assistant Secretary for policy and international affairs David Sandalow, President of the Environmental Defense Fund Fred Krupp, and Bill Fehrman, President/CEO of MidAmerican Energy Co.

Senators Boxer and Kerry must navigate between calls for the bill they are writing to be more and less than the comparable legislation passed by the House of Representatives in June. The final Senate bill must eventually be combined with the House law in a compromise conference, from which legislation to be sent to the President will emerge. Boxer and Kerry have been cautiously coy about how similar to the House bill the legislation they are still writing is.

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Liberals want tougher efforts to cut GhGs. Moderates want less pressure on the fossil fuel industries to alter their way of supplying energy. Conservatives want nuclear energy included in the package.

Senator Boxer has said she and Kerry are “tweaking” their legislation’s provisions in response to the administration’s goals, their own preferences and the pressures of the political process.

One environmentalist described the process as dialing up and down on various options.

Senators Boxer and Kerry are said to be first concerned with the legislation’s cap&trade provision and with “tweaking” the target for emissions cuts and the amount of emissions allowances to be auctioned in the process of creating a market-based system to cap and reduce GhGs.

Can they stop it? (click to enlarge)

There are reportedly offers from some Senators for "tweaking" the legislation’s provisions on nuclear energy and coal in return for their support of cap&trade.

Other Senators have suggested bypassing the controversial and complex cap&trade provision in the legislation entirely and simply establishing a national Renewable Electricity Standard (RES) requiring regulated utilities to obtain 15% of their power from New Energy sources by 2021. This would be the first-ever U.S. RES and is widely seen as doable if New Energy advocates will make some compromises on offshore oil and gas drilling.

Liberals determined to get a U.S. GhG-cutting regime have a “fall-back plan”: They are willing to let cap&trade die and let the Environmental Protection Agency (EPA) independently attack GhGs as a pollutant. While they might like the certainty on GhG cuts that would come with strong Congressional legislation, if Conservatives make that politically impossible, liberals are willing to face the legal battles that “regulation by the executive branch” through the EPA would mean. The House bill offers moderates and conservatives the opportunity to sweep the EPA's power off the table in return for a law on GhG cuts.

How it works. (click to enlarge)

An indication of the parameters that might define the Senate legislation came from the debate in the Energy and Natural Resources Committee chaired by Senator Jeff Bingaman (D-NM). Significant concessions to the oil and gas industry passed while concessions on nuclear energy were weaker.

One of the key developments in the fight may be a potential alliance struck between New Energy advocates and the oil and gas industry on behalf of natural gas. Noted environmentalist Robert F. Kennedy, Jr., recently called for a turn to newly developed abundant U.S. natural gas reserves as a bridging strategy, a way to move away from the nation’s present over-reliance on coal.

In conjunction with the compromise struck in Bingaman’s Committee allowing more offshore oil and gas drilling in previously protected areas, there have been statements from the oil and gas industry questioning coal industry benefits in the legislation. Splitting fossil fuels advocates could open a path for compromise on climate change and New Energy.

Conservatives believe cap&trade will ruin U.S. competitiveness in international markets. (click to enlarge)

It is an interesting alliance. U.S. oil supplies long ago peaked and all the drilling in all the protected areas are unlikely to make domestic oil a significant factor in the national energy picture. The public shows a strong commitment to moving away from imported oil in transportation if it is possible and Detroit could be on the verge of leading a revolution in electric vehicle transportation. Meanwhile, natural gas – as Kennedy pointed out in his landmark Financial Times op-ed piece – is at least temporarily abundant and generates only half the GhGs and far less of the toxicity that coal does.

By the time domestic natural gas supplies begin waning, in 2-to-3 decades, New Energy infrastructure should be in place - assuming the Senate can muster a bill to start the nation along the road to change.

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COMMENTARY
House Resolution 2454, the American Clean Energy and Security Act of 2009 (ACESA), written by Representative Henry Waxman (D-Calif), Chair of the House Energy and Commerce Committee, and Representative Ed Markey (D-Mass), Chair of the House Energy Subcomittee, was passed by the full House in June. It called for:
(1) a national Renewable Electricity Standard (RES) requiring regulated utilities to obtain 15% of their power from New Energy sources by 2020;
(2) a cap&trade system allotting 15% of emissions allowances for auction (and 85% given away freely in the early, transitional phase of the program to ease businesses and consumwers into it) as part of a market-based program to cut U.S. GhGs 17% by 2020 and 83% by 2050;
(3) a long list of subsidies and funded programs to drastically improve U.S. Energy Efficiency and increase R&D for New Energy.

The tenets of the Waxman-Markey bill were weakened through a rigorous process of compromise as it worked its way through the House Committee process. The Senate legislation, expected to have comparable provisions, is likely to face the same fate of compromised goals.

There are very important efficiency provisions that will be lost if the bill is defeated. (click to enlarge)

Senate liberals, for instance, want to move the Waxman-Markey goal of 17% cuts in GhGs by 2020 to 20%.

Environmentalists, an essential part of the Democratic base and potentially invaluable to Boxer if she is challenged for her seat in California in 2010, have been a prominent force at previous EPW hearings. They dressed in attention-getting muscle-builder costumes and called for legislation requiring 40% cuts in GhGs by 2020.

The political reality is that there is little hope of getting GhG cut requirements stronger than the 17% required in previously passed legislation, especially when President Obama has indicated a willingness to settle for 14%. Boxer is faced with the reality of powerful moderate EPW member Senators Max Baucus (D-Mont) and Arlen Specter (D-Penn). They represent coal-dependent states and are not likely to be willing to consider stronger GhG reductions.

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Senator Baucus, the powerful Chair of the Senate Finance Committee and crucial to the fight over health care reform, has also indicated he wants significant input in the Boxer-Kerry decision on what portion of emissions allowances will be auctioned. (Senator Baucus’s Finance Committee holds a last pre-recess hearing on the allowance question today.) Though environmentalists believe the 15% allowances auction called for in Waxman-Markey is far too weak, Baucus is not likely to go for auctioning a larger portion. He is thought to be backed by coal-state Senator Byron Dorgan (D-ND), as well as moderate Senators Tom Harkin (D-Iowa) and Ben Nelson (D-Neb). MidAmerican Energy’s Fehrman is expected to testify on their point of view at the EPW hearing.

The Blue Dogs will howl before the last vote is recorded. (click thru for more on the Blue Dogs)

It could be possible to move Senate liberals like Senator Bill Nelson (D-Fla) and Senator Robert Menendez (D-NJ) away from their call for stronger emissions cuts and against offshore drilling with a promise to stand firm against nuclear energy, if they understand the nature of the compromise alliance possible with the oil and gas industry.

The pro-nuclear energy contingent is led by Senator Joseph Lieberman (I-Conn.) and Senator John McCain (R-Ariz.), who have worked before on cap&trade bills. Lieberman argues he can bring enough pro-nuclear energy votes to pass cap&trade. But giving in to the nuclear energy contingent would go against the wishes of Senate Majority Leader Harry Reid (D-Nev), who has promised his Nevada constituency to protect it from a literally and politically radioactive nuclear waste disposal dump proposed for the state's Yucca Mountain. Concessions on nuclear energy would also compromise both Boxer’s and Kerry’s longstanding antipathies to the expansion of nuclear energy. Though such a compromise remains possible, it also remains unlikely.

Headed for conference. (click to enlarge)

QUOTES
- Senator Ben Cardin (D-Md.): "I like the House bill, don't get me wrong…But I think we can do better…I know where [Senator Boxer] is philosophically…But I don't know where she is on drafting."
- Senator Frank Lautenberg (D-NJ): "That's the objective, as far as I'm concerned…Because the glide path has to be established that enables us to get to 80 percent in 2050. You can't get there unless you start aggressively pushing."
- Jason Grumet, executive director, National Commission on Energy Policy: "There's not a lot of room to expect to move the legislative product more aggressively than the House…You have to ask how much value there is in pushing the bill. What does the advocacy community get by pushing farther to the left if there's no sense they can sustain that outcome?…[But]…This is too big a piece of legislation to not have all the key constituencies with their voices at the table…"

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- Senator Mary Landrieu (D-La.): "I'm using this time to try respectfully to educate members of my caucus, and maybe some Republicans, about the importance of natural gas, the importance of domestic energy security, so we don't lose that in this debate…It's not just about cleaning up the environment. It's about securing America's economic future. And both are important."
- Senator Lieberman (I-Conn): "We'll be offering amendments, suggestions, that will change the bill to get us to the 60…I think the bill Senator Boxer and Kerry write will be an important start, but we'll need to do work on it to get us to 60."
- Senator Boxer (D-Calif): "We're tweaking it as we go, section by section..."
- Jeremy Symons, vice president, National Wildlife Federation: "What we're really dealing with…are a bunch of dials that you can adjust one direction or another."